In personal finance, individual wealth is often measured in terms of the total value of the cash and property you own. The term "personal asset" describes cash and the things you own that have monetary value. Common types of personal assets include cash and the value of financial accounts, real estate, personal possessions and stocks.
Cash and Financial Account Balances
The cash you have on hand and the total amount of money held in financial accounts, such as savings and checking accounts, are personal assets. In general, it's better to save money at a bank than to keep cash on hand because money saved at a bank earns interest that can help you increase wealth over time.
For many individuals, real estate comprises a large share of their personal assets. The value of ownership you have in a home, in land or in other structures are personal assets. The value of ownership in a home is often referred to as "home equity." Home equity is equal to the total value of the house minus any debts you have on the home, such as a mortgage or home equity loan. For example, if your home is worth $200,000 and you have an $80,000 balance left on your mortgage, you have $120,000 of home equity.
Any personal possessions you own that have monetary value can be considered personal assets. Examples of valuable possessions include automobiles, boats, electronics, jewelry, collectibles and antiques. It can be difficult to place an accurate cash value on personal possessions; items may sell for significantly more or less than you or an appraiser expects.
The value of the shares of stock, mutual funds and other investments you hold is another type of personal asset. Many people invest a large proportion of their assets in stocks and similar equities because they may increase in value over time and produce gains in wealth that outpace typical bank interest rates. When you sell shares of stock, you must pay capital gains taxes to the IRS on any profit you realize. For instance, if you buy a share of stock for $40 and sell it for $50, you owe taxes on the $10 gain.
Personal wealth is often measured in terms of "net worth." Net worth is equal to your total assets minus your total liabilities or debts. It's possible to have personal assets that are worth millions of dollars, and yet have a low net worth due to high levels of debt. Controlling debt is essential to building wealth and securing financial freedom.